COURTKUTCHEHRY SPECIAL ON CIBIL OPAQUE FUNCTIONING
Telangana High Court Flags CIBIL Data Privacy: Why Credit Scores Lack Transparency and Impact Borrowers
PIL challenges data collection by credit bureaus
Low scores can block loans, jobs, and financial freedom
By Our Legal Correspondent
New Delhi: January 30, 2026:
The Telangana High Court recently warned the Union Finance Ministry of penalties for failing to respond to a PIL filed in 2021 that challenges the way credit information companies, including TransUnion CIBIL, collect and process personal data. The petition, filed by Hyderabad resident Krupa Soni, argues that the current system lacks transparency and puts citizens at risk by allowing sensitive financial data to be shared across institutions without adequate safeguards.
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This case has brought the spotlight back on CIBIL scores, the most widely used credit rating system in India. While banks and financial institutions rely heavily on these scores to decide loan eligibility, customers often complain that the system is opaque, unfair, and prone to errors.
What is CIBIL?
- CIBIL (Credit Information Bureau (India) Limited) is India’s leading credit information company, now owned by TransUnion.
- It collects data from banks, non-banking financial companies (NBFCs), credit card issuers, and other lenders.
- Based on this data, it generates a credit score ranging from 300 to 900, which reflects a person’s creditworthiness.
- A score above 750 is generally considered good, while anything below 650 can make borrowing difficult.
How Does CIBIL Collect and Collate Data?
- Banks and NBFCs report customer loan and credit card details to CIBIL every month.
- Information includes:
- Loan amounts, repayment history, defaults, and delays.
- Credit card usage, outstanding balances, and payment patterns.
- Number of loan applications made by the customer.
- CIBIL collates this data into a credit report, which is then used to calculate the score.
- The score is shared with lenders whenever a customer applies for a loan or credit card.
Why CIBIL Scores Lack Transparency
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- No Clear Formula: Customers are not told exactly how scores are calculated.
- Errors in Reporting: Mistakes by banks or NBFCs often lead to incorrect scores.
- No Easy Dispute Resolution: Correcting errors is a slow and complex process.
- Overdependence on Lenders: Customers cannot directly control what data is reported.
- Opaque Weightage: Factors like repayment history, credit utilization, and loan applications are considered, but their exact weightage is undisclosed.
This lack of transparency has led to frustration among borrowers, many of whom find themselves denied loans despite being financially stable.
Impact of a Low CIBIL Score
A poor credit score can have serious consequences:
- Loan Rejection: Banks may refuse personal loans, home loans, or car loans.
- Higher Interest Rates: Even if loans are approved, customers may face higher interest rates.
- Credit Card Denial: Low scores can block access to premium credit cards.
- Employment Risks: Some employers check credit scores before hiring for sensitive financial roles.
- Financial Stress: Customers may be forced to borrow from informal sources at high interest rates.
The PIL and Court’s Concerns
- The PIL challenges the RBI’s 2021 notification that allowed credit information companies to expand their data collection powers.
- The petitioner argues that personal data is being shared without adequate safeguards, violating privacy rights.
- The High Court has asked the Finance Ministry to respond by March 17, 2026, warning of fines for delays.
- The case could lead to new regulations ensuring transparency and accountability in credit scoring.
Broader Implications
- For Borrowers: Greater clarity and fairness in credit scoring.
- For Banks: Stricter rules on data reporting and accountability.
- For Policymakers: Need to balance financial stability with citizens’ privacy rights.
Also Read: Supreme Court: No Fresh Objections After Decree Execution Under Section 47 CPC
Recommended Legal Resource
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Conclusion
The Telangana High Court’s intervention in the CIBIL data privacy case is a turning point in India’s financial landscape. By questioning the transparency of credit scores and the way personal data is handled, the court has opened the door for reforms that could protect millions of borrowers.
As India’s economy grows and more citizens rely on credit, ensuring fair, transparent, and privacy-respecting credit scoring systems will be essential. Until then, borrowers must remain vigilant, regularly check their credit reports, and dispute errors promptly to safeguard their financial future.
Also Read: Supreme Court: No Fresh Objections After Decree Execution Under Section 47 CPC
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Also Read: Supreme Court: No Fresh Objections After Decree Execution Under Section 47 CPC